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Wednesday 28 December 2011

Retracement Setup vs Holiday Apathy

ES broke the support trendline from the low at the close last night and if we're going to see a retracement then this is the place. I've not marked it in but the hourly 50 SMA was support last night and an hourly close below that should confirm a retracement here. That's currently at 1257.5. There's a currently promising double-top setup with the target in the 1244 area and a potential H&S neckline, and decent support, in the 1250 area:
On the TRAN chart I posted yesterday TRAN very slightly overshot ascending triangle resistance and the setup here is also promising for retracement. A break above with confidence today would be a significant resistance break and would most likely kill the retracement setup here and on ES. If TRAN were to reverse towards rising support then that would give a potential retrace on SPX of 40-50 points, though that looks very ambitious:
One thing that looks promising on the short side here is the laborious way that EURUSD has been crawling painfully up the support trendline. The move up couldn't really look much less impulsive and suggests that EURUSD will at least retest the lows soon. EURUSD hasn't actually hit declining resistance however, though it is only 25 pips above at the time of writing. The support and resistance trendlines are converging fast so EURUSD will have broken one or the other by this time tomorrow:
A short post today so I'll leave it there for the short term charts. For the last chart today I'd like to thank AllAboutTrends as I started looking hard at the NYA index after seeing a chart of theirs yesterday. NYA is the NYSE composite index, which includes about 2000 stocks listed on the NYSE, excluding ETFs and so on. It is therefore a very broad index and what I found there looks very interesting indeed.

Some of you may recall that I was targeting 1000 - 1020 on SPX in the summer and the reason for that was that my target area was the neckline on a monster H&S that might have been forming. Obviously SPX didn't make it down that far, but NYA did make it, and you can see that, and also the analog monster H&S that formed between 2005 and 2008 for comparison. Will that continue to form? Who knows? If it does though then we could see another one to five months trading in the range of the last three months while the right shoulder completes. What I would add here is that this monster H&S would be a decent match to similar patterns forming on EEM and GBPUSD, among others, so it does bear watching here.

What was also interesting was that the H&S that failed in summer 2010 never actually broke the neckline on NYA. I'll be adding this index to my regular watchlist:
Short term this is a very promising reversal setup on ES but I'm wondering whether this low volume and apathetic tape will allow much of a retracement. We shall see. As I said, an hourly close below the hourly 50 SMA on ES would be a good sign that we should at minumum test 1250, and it that breaks then the retracement could run quite a way further down.

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